With a growing number of Canadian pension plans facing questions about their ability to meet their obligations, many companies desperately want help.

“Some employers are saying: ‘Get me out of the pension business or help us simplify the plan we have,’ ” said Sweatman, a partner with Fraser Milner Casgrain LLP. “They take it very seriously because they’re aware they have a fiduciary responsibility and they care about their employees.

“But they’re also worried about whether they can sustain the promises they’ve made and can they deliver on the pension deal.”

Persistent low interest rates and mediocre investment returns have threatened the ability of many plans to build up enough assets to match their liabilities. The average solvency ratio of Canadian pension plans — the ratio of assets to liabilities — has fallen from more than 90 per cent two years ago to about 75 per cent or even lower right now.

It’s a trend that concerns regulators, particularly when it comes to defined-benefit plans.

(Under a defined-benefit plan, employers promise workers a specified monthly benefit on retirement that is based on a worker’s earnings history and years of service under the plan.)

Nineteen of 210 defined-benefit plans registered in B.C. now are subject to “heightened monitoring” by the B.C. Superintendent of Pensions as they work to improve their funding situation. Factors that were considered before putting the plans on the watch list include the plan’s current funding levels, the age of employees and the general health of their industry.

The number of federally regulated plans on a watch list has risen from 49 to more than 125 in the past two years — most of them defined-benefit plans.

So what went wrong?

Vancouver pension consultant David Lee cites several factors behind the crisis that has seen pension solvency creep into mainstream water cooler conversation.

He feels many plans were poorly designed and offered unsustainable long-term benefits, including future payments linked to inflation.

Lee said some investment managers’ lack of investment discipline and false assumptions about certain investments led to many of the problems facing plans now. Poor communication among plan advisers and trustees was also an issue.

“Some trustees have told me of cases where the investment manager came in and told them things were good, that they got a nine per cent rate of return — two points more than the actuary assumed,” he said.

“But then the actuary came in later and told them they had a funding problem. Maybe they should both be in the room at the same time.”

Lee said many fund managers were too quick to invest heavily in equities, accepting the notion that stocks always outperform bonds over the long term.

But he said that’s not always true, noting that between December 1981 and December 2012, long-term government of Canada bonds provided a better return than the TSX.

The late-2008 global financial meltdown that caused markets to crash and forced interest rates down — possibly for a very long time — forced pension fund managers to reassess everything.

Lee said rising life expectancies have made pension plan liabilities extremely long-term, with actuarial tables to age 110 reflecting the reality of current longevity, so it’s crucial to match that long-term liability with long-term assets.

“In some cases, you could look at 30-year government bonds as a starting position,” he said. “Matching is important because if you don’t invest for long enough, you have a reinvestment risk where you don’t know what you’re going to get.”

Lee feels diversification of assets within a pension plan isn’t always the best way to go, citing the Warren Buffett quote that diversification makes little sense for those who know what they’re doing.

“We have set up structures that others say may not be diversified enough,” he said. “That argument might make sense in an asset-only world with no liabilities to worry about, but we’re responsible for matching up assets with liabilities.”

While low interest rates have been the bane of pension fund managers looking for higher returns, Lee questions whether rates will rise anytime soon and pull a lot of plans out of trouble. He said high government debt could dampen economic growth and keep interest rates low for many more years.

Sweatman feels that in the long term, pension solvency issues will slowly correct themselves as interest rates and investment yields rise. But there could be a lot of sacrifices along the way — possibly with employers and employees having to boost their contributions to plans or employees having to accept lower benefits than expected or even some plans being wound up.

Sweatman stressed plan windups aren’t as common as current headlines would indicate, noting the windup of the Skeena Cellulose plan over a decade ago was the last major one in B.C.

But he feels some companies and their shareholders want to get out of the pension business because they don’t necessarily see the value in employee retention, which is what pension plans used to be about.

“They’re saying there’s just too much volatility on the balance sheet,” Sweatman said. “In some cases, the pension plan liability is larger than the assets of the company itself.”

Sweatman said the bigger issue in Canada now is that Canadians just don’t have enough retirement savings, which he feels is a recipe for “social disaster.” Only about 24 per cent of private sector workers in the country have a pension plan so it’s up to individuals to put money away for their retirement.

“It’s not a politically sexy topic, and which politician really wants to say we really need to tackle savings in this country?” Sweatman said. “The other tension at play is that we want people to spend on consumer goods to boost the economy.”

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